True or False? Briefly explain

(a) If stock market is efficient and if a company's sale exhibits strong seasonality, stock price of the company should also exhibit strong seasonality. (Based on Thaler's "The Beauty Contest). (b) Siegel's claim of the outperformance of stocks over fixed income securities does not hold if you begin to hold stocks at the peak of stock prices (Based on Siegel's Risk, Return, and Portfolio Allocation). Note: On page 29 of this article, there is a statement that 'the standard deviation of average annual returns is inversely proportional to the holding period if asset returns follow a random walk'. This can be very easily proven once you know the variance formula for long term return discussed in lecture note 5. Figure 2-5 in this reading can be understood once you finish lecture note 3. (C) 200 day moving average strategy for Dow Jones Index works well during boom times but fails miserably during bad times in the 20th century in that the strategy suggested that you should stay in the market right before the crash of 1929. (Based on Siegel's Technical Analysis and Investing with the Trend). (d) In applying fundamental and technical analysis for stock investing, one should be careful not to be affected by psychological factors such as the fancy of the crowd (Based on Malkiel's Technical and Fundamental Analysis). 1 (e) Overconfidence is more commonly observed among institutional investors than among individual investors since institutional investors have access to quality information which tends to increase their confidence level (based on Nofsinger's "Overconfidence). (a) If stock market is efficient and if a company's sale exhibits strong seasonality, stock price of the company should also exhibit strong seasonality. (Based on Thaler's "The Beauty Contest). (b) Siegel's claim of the outperformance of stocks over fixed income securities does not hold if you begin to hold stocks at the peak of stock prices (Based on Siegel's Risk, Return, and Portfolio Allocation). Note: On page 29 of this article, there is a statement that 'the standard deviation of average annual returns is inversely proportional to the holding period if asset returns follow a random walk'. This can be very easily proven once you know the variance formula for long term return discussed in lecture note 5. Figure 2-5 in this reading can be understood once you finish lecture note 3. (C) 200 day moving average strategy for Dow Jones Index works well during boom times but fails miserably during bad times in the 20th century in that the strategy suggested that you should stay in the market right before the crash of 1929. (Based on Siegel's Technical Analysis and Investing with the Trend). (d) In applying fundamental and technical analysis for stock investing, one should be careful not to be affected by psychological factors such as the fancy of the crowd (Based on Malkiel's Technical and Fundamental Analysis). 1 (e) Overconfidence is more commonly observed among institutional investors than among individual investors since institutional investors have access to quality information which tends to increase their confidence level (based on Nofsinger's "Overconfidence)